Motley Fool Hidden Gems Investing - "Top Gun: Maverick" Wins the Weekend and Strengthens Studio Businesses

Episode Date: May 31, 2022

It wasn't just Tom Cruise's biggest opening weekend ever, it was the biggest Memorial Day opening weekend for a U.S. movie. (0:25) Bill Mann discusses: - How "Top Gun: Maverick" is the right movie at the right time - Ripple effects for studios, streamers, and more - Unilever's stock popping 9% by adding activist investor Nelson Peltz to the board - Why he's a fan of Peltz and his form of shareholder activism (13:00) Robert Brokamp talks with Dan Caplinger about how investors can fight inflation and one common myth about how to hedge against rising prices. Stocks discussed: PARA, DIS, AMC, UL, PG Host: Chris Hill Guests: Bill Mann, Robert "Bro" Brokamp, Dan Caplinger Producer: Ricky Mulvey Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hillenbrand. What can a board member do for a company's stock price? In the case of one business today, the answer appears to be a 9% bump. Details next. Motley Fool Money starts now. I'm Chris Hillen. Joining me today, Motley Fool Senior Analyst, Bill Mann. Thanks for being here. My voice is a little hoarse today, Chris. I went to go see Top Gun Maverick last night, so I've got lots to talk about and no voice to do it. What a perfect combination. There was crying. I'm not going to lie. There was crying in the theater. Not me,

not me, but embarrassed. I don't want you to spoil anything because I think I'm going to be seeing it on Thursday, but we're actually going to start with Top Gun Maverick. The business ripple effects of this film are what I want to talk about. Now, not adjusted for inflation, $156 million at the box office, it's the biggest Memorial Day weekend opening ever. It's the biggest opening weekend for Tom Cruise for any of his films ever, so I'm glad something finally good happened for him. There is a lot of talk today about movie theater stocks, in particular, AMC, which, sure, if you're an AMC shareholder, you wanted this thing to be a hit. But I don't

know. Am I wrong in thinking the potential ripple effects go beyond movie theater stocks? Because I think the number that struck me, Bill, beyond the dollar figure, which is impressive, the number that struck me is 4,700, because that's how many theaters this movie opened in, and this is an opening weekend that you would see pre-pandemic. More so than anything else in the entertainment industry that I've seen in the last couple of years, this to me was a signal of, oh, wait, people actually will go into movie theaters if you give them a reason to. Yep. I think that's absolutely the case. It was estimated because the numbers aren't as clean going around the world, but it was $280 million worldwide on its open. And that's

impressive, even more so because it didn't open in China or in Russia. So, this was a huge open. It was also, it was a sign of a couple of things to me, and I really don't want to talk about AMC, but it is a sign that theaters are back, that we are at a point in which people are comfortable going to the movie theaters, and they did so in huge, huge numbers. It also, to me, not to become film critic, because I know you don't want that, and I know you don't want me to spoil the ending, but it's a Top Gun movie, so the ending really doesn't matter. It's the journey. But this was the least cynical movie that I've seen in a really long time. It was uncynical in the same way that Ted Lasso was uncynical and came at a perfect time. So,

I wonder if one of the implications are that people, and by people, I mean movie houses, will pay attention to the fact that this is something people want. And when that happens, you tend to do see a bump. I also wonder how many of the people who went to see this film over the last four days, for them, it was their first time back in a movie theater before the pandemic, because we've seen this with travel, we've seen this in restaurants, and of course, we're going to see it in movie theaters as well, that maybe there's a little trepidation going in, but if it's your first time since before the pandemic and you have a good experience, it puts you in a level of relief where you think, oh, okay, it took this

blockbuster film to get me in the theater, but it's not going to take a blockbuster on this level to get me back in the theater and back out in the world. It's so funny that you say that. And I hadn't really thought about it in these terms until you started going down this path. I think this was the perfect movie to really launch a reopening for the theaters because it is that type of a positive experience. So I went with four other people yesterday and three of them had not been back into a movie theater since the beginning of the pandemic. And this was the event that brought them there. It was something that was 100% going to feel good. Again, not giving away anything. They don't even name who the enemy is in this movie. They're not going after anyone.

It's just there are mythical bad guys. You don't have to name them. There's just nothing about this movie where they're trying to outsmart the audience or trying to be ironic. It's just straightforward action fun. You're exactly right. That's something people have craved and will go back for and did it to the tune of more than $100 million in box office revenues. I heard it said this morning, someone was writing that obviously the enemy that they were talking about that they didn't name was Wakanda. I think a bold choice really would have been Switzerland, just to mix it up. Great opening to the summer box office season, and we'll see where it goes from here, because certainly there are other big-ticket films coming on. One more thing on

this topic before we move on. I wonder what this does for businesses like Disney that have studios, but have a streaming service. And if it makes their life easier or harder in terms of decisions of, well, what are we putting to the streaming service? What are the things that we're getting? Because I would think this is fodder for the people inside Disney Paramount, which is the they have their own streaming service, and they're the studio behind this film. I'm assuming this lends fodder for people who are saying, no, we really do need to continue on a tentpole strategy, get the revenue at the box office, and then move things to the streaming service. 100%. Absolutely, that's the plan. You could even see it with this movie in that they

were setting it up to move it into a franchise. You can absolutely see it. And again, it's harmless. You're perfectly allowing to have that happen to you. But you know at the end of this movie what the next movie is and who the stars are. So, absolutely, the streaming companies, and Paramount in this case has their own streaming service, are setting this up so that movies, maybe even video games and streaming services complement and reinforce each other. Because this was an opening this last weekend also of Obi-Wan Kenobi for Disney. I mean, this is absolutely positively a reinforcement of that model. We're going to move to a very different industry, which is the consumer products industry. Unilever has over 400 global brands. And the news

today is that Unilever is getting a new board member, activist investor Nelson Peltz, who runs Triand Fund Management, which owns 1.5% of Unilever. Shares of Unilever are up 9% on this news. I don't mean any disrespect to Mr. Peltz, but I'm wondering, what do some investors think he is going to do to improve Unilever's business that warrants this kind of optimism? Ideally, it's beam Hellman's Mayonnaise into a wall. Or something with Ben & Jerry's, I'm not sure. Something with Ben & Jerry's. So, it was a really interesting transaction.

So, Nelson Peltz and Tryan came in and took a marginally hostile but an activist position at Procter & Gamble in 2017, and they really made suggestions. I really respect Nelson Peltz, because he's not an activist who comes in and says, okay, we're going to financially re-engineer this company. He has actual structural suggestions, and they really, really worked at Procter & Gamble, which is a pretty good proxy for Unilever. I mean, they own- I would argue it's the best proxy for Unilever. Yeah. Yes. I mean, I guess the only difference being is that Unilever is a U.K. domiciled company as opposed to Procter & Gamble being a U.S. one. So, some of the corporate realities

of the business are different. But Procter & Gamble is up more than 90% since 2019. And I don't know if you know this, but there was a really big supply chain issue or three in between those times. So, Procter & Gamble is running on all cylinders. Now, I wouldn't say, it's really overstating the point to suggest that Nelson Peltz came in and single-handedly turned around Procter & Gamble. But just like Procter & Gamble was at that time, it seems like Unilever's management is willing to listen, and he is pushing them in the right direction. You're a fan of Pelts. I am. So, so many of these corporate activists really come in and they do some kind of a financial re-engineering like,

okay, let's take all of your properties and then you sell them and then rent them back. That's no restructuring, that's like financial engineering. He really came in. With Procter & Gamble, for example, he said, basically, you have an entire mess of brands that you are trying to run centrally. Why don't you organize them into groups and cohorts and have them run almost like separate companies from each other so that you might even be in a situation where two P&G brands are competing with each other for shelf space or things like that. It really helped to revitalize not just some of the brands and they figured out some things that they didn't want to own anymore. But that's happening with Unilever again, and Unilever is

also at the beginning of trying to figure out how to change what has been a fairly sleepy corporate culture. To me, in some ways, Chris, having someone like Peltz come in gives management a little bit of cover to make hard decisions. They're like, well, our hands are tied, this guy. This guy is coming in and we need to pay attention." In some cases, and I think that Peltz is amongst the best, having an activist investor coming in really helps the management team. Bill Mann, great talking to you. Thanks so much for being here. Hey, thanks, Chris. Enjoy the movie. Last week, Certified Financial Planner Robert Brokamp talked with Dan Kaplinger

about a couple of ways investors can fight inflation. Today, Bro continues that conversation and dispels one common myth about how to hedge against rising prices. A particular type of stock that has done well during inflationary periods in the past and paid an above-average dividend is a real estate investment trust, or REIT. Now, REITs have not done particularly well this year, but history suggests that REITs should still play a part in your portfolio. Plus, real estate investing in general can be a good inflation hedge, and we discussed why in our March 29th episode. But part of The reason is because tangible stuff in general can do well when prices spike.

Which brings us to our third inflation fighter, at least potentially, and that is commodities. Dan, tell us a little bit about putting commodities in your portfolio to fight inflation. Yeah, bro. Commodities are something a lot of people think about when we're talking about inflation, because commodities are the things that we're paying higher prices for. And so in an inflationary environment, almost by definition, commodities seem like the thing to buy because their prices are going up. And sure enough, when you look at some commodity-based investments, like the InvescoDB Commodity Tracking ETF, it's up significantly this year, a 35% rise year-to-date here in 2022. That follows a 41% increase in 2021.

And it's pretty easy to understand why, anecdotally. We've heard all of the stories, and we're seeing the pain ourselves, whether it's paying more at the pump for gasoline, whether it is paying higher prices for the food that we buy at grocery stores and eating out at restaurants, whether it is sky-high airfares as we try to travel for the first time in several years. Consumers are really seeing it. And it is something that if you can cash in and say, okay, well, how can I buy the things that go into making these higher-priced elements possible? How can I get exposure to rising

crop prices, rising energy prices, rising metals prices for the industrial needs that we have, for the steel that goes into cars and aircraft, for aluminum, for nickel, for even the lithium that goes into electric vehicles. It's always a question, how can you cash in on that? The issue with commodity ETFs is that while they do a pretty good job in the short run of matching movements in the commodity markets, the long-term trajectory that they've taken is far from great. When you look over, we mentioned that one commodity ETF, and it's up over the past year, year and a half or so, but it has not done particularly well over the past decade. It's been not very good at all, actually. And again, you can see why if you turn back the

clock to the early 20-teens, you had record high gold and silver prices. You had oil prices pushing up well into the triple digits. Then in the late 20-teens, you had a long period of cyclical decline. You saw those precious metals prices fall. You saw energy prices fall. We had our lowest gasoline prices in a long, long time in the late 20-teens. Then into 2020, we had the big energy disruption at the beginning of the COVID-19 pandemic. At that point, energy prices just fell all the way through the floor. That is one reason. Commodities, you see great volatility and they look like great investments during up cycles. But as long-term investments, you inevitably have to endure long downward cycles as well. The other challenge with commodities

is that investing in them is difficult. Most of us don't have a silo to put a bunch of weed in. Even if we did, it wouldn't last more than a few months. Most of us don't have a bank vault to put a whole bunch of gold in, don't have mining capacity to dig up our own oil in our backyards or anything like that. We usually have to turn these investments that you can buy that are tied to commodities are usually based not on actual commodities, but on futures contracts. When you do that, you open yourself up into the vagaries and idiosyncrasies of the futures markets. I won't get into the big details because it's a complicated topic, but just to give you a sense, there was a period of time in April 2020 when futures contracts on crude oil were negative.

It meant that people in the futures markets were actually paying people to take oil off of their hands. Now, I don't know about you, but I did see those gas prices fall, but nobody was ever paying me to put gasoline in my car. So that kind of gives you a sense of just how uprooted futures markets sometimes get. And while conditions aren't usually that extreme, the overall trend for a lot of commodities markets makes ETFs that track them underperform the long-term price trends of the actual commodity. So, before you go there, just be careful with it. I'll just throw in one other thing. When you're talking about things like gold, gold is probably seen as the ultimate inflation hedge. We looked up a study from Duke University. Some researchers there did some study

and concluded that gold prices do, in fact, match up with inflationary trends, as long as you have a century or more to invest. Now, that's a long time. We're big on long-time horizons here at The Motley Fool, but a century or more is longer than even really the most optimistic of us out there. And so I think that there's probably better ways to protect against inflation than just having a big block of gold. I will say I've got a couple of gold coins at home, but they're more for the coin value than anything else. So we'll just leave it there. But commodities maybe make sense to a limited extent, but I like to get my commodity exposure not through the actual commodities, but rather through the stocks that actually

generate them. So, oil and gas companies for exposure to crude oil, mining companies for exposure to gold and silver, food products companies for crops exposure, and that kind of thing. The fact that these operating businesses make profits, often pay dividends, it gives them an advantage over just directly investing in the commodities markets, in my view. Let's move on to inflation fighter number four. It's your human capital, which is basically your ability to earn a growing and safe paycheck. You might wonder why we're talking about this, because we were talking about portfolios. Well, your portfolio is funded by your paycheck. In order to invest money, you first have to earn money. When Warren Buffett was asked how to deal

with rising inflation at the Berkshire Hathaway meeting this year, he said, the best thing you can do is to be exceptionally good at something. And later on, he said, whatever abilities you have can't be taken away from you. They can't actually be inflated away from you. So what we're seeing now in these days of higher prices, we are seeing wage growth. It's not keeping up with inflation for everyone, but it is still going up, and it's going up more than we've seen in many years, in some cases, decades. Plus, for some professions and higher performers, if you're just doing really well at your job, compensation is outpacing inflation. In fact, over the long term for professionals, compensation rises about 2% to 4% above inflation over

someone's career. So, what do you do? Well, take some time to think about your job performance and your career path and determine maybe what you can do to boost your income. And as a reminder, in our April 26th episode, we discussed how to ask for a raise. And final thought on this topic, when prices go up, the cost of your financial goals go up. Add that to portfolios that are now worth less, and many people might now be further behind in saving for retirement or whatever goals you have. The solution, of course, is to get more money into your 401k, your IRA, your brokerage account, and it's a lot easier to do if your income is growing. So, those are a few ways to fight inflation. Dan, do you have any final thoughts on inflation

here for us? I do. The sentiment on inflation has really just gone the full spectrum in the past couple of years. At first, people saw inflation as being purely transitory, nothing to worry about whatsoever. Now, we've gone into almost full-blown panic mode, with everybody harking back to the 1970s and 1980s and thinking that we're going to have a full-blown stagflationary environment, in all likelihood, the real answer is somewhere in between. It doesn't mean you shouldn't be worried about it. It doesn't mean you shouldn't take some steps to deal with it. But don't make it the focus of your investing strategy. Don't let it take you away from the long-term strategy that has worked

so well for so long. It will continue to work. Just consider these ideas as you position yourself in this inflationary environment. Yeah. And I'll just add, there's really not going to be any magic silver bullet to this. Investing in general, some things will work better than others. Some will work just as well as they did in the past. Some will not. So the wise thing to do is just to take a multi-pronged approach to making sure that your portfolio keeps up with rising prices. And with that, Dan, thanks for joining us! Thanks! I really like being here! Thanks, Bro! As always, people on the program may have interest in the stocks they talk about,

and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening! We'll see you tomorrow! Thanks for watching!